DELAWARE COMPANY FORMATION FOR FOREIGNERS

My Delaware LLC Formation Fee: $ 1,200

Types of companies in Delaware

Choosing the right company type

Each company type in Delaware offers distinct advantages and carries different obligations. There is no one-size-fits-all solution in the field of Delaware company formation and the choice really depends on your particular needs. However, due to its flexibility, most foreign investors and businessmen usually prefer to form a Delaware Limited Liability Company (LLC).

Why Delaware?

Delaware is one of the most popular states for foreigners to incorporate a company due to its business-friendly environment, strong legal protections, and tax advantages. One of the main reasons is that Delaware does not impose state income tax on businesses that do not operate within the state. This makes it particularly attractive for foreign entrepreneurs who want to register a U.S. company but do not have a physical presence in the country.

Another significant factor is Delaware’s well-established corporate law. The state has a specialized Court of Chancery, which deals exclusively with business matters and resolves disputes efficiently. The legal framework in Delaware is highly respected worldwide, giving businesses a level of predictability and confidence when it comes to legal matters.

Privacy is another advantage. Delaware does not require the disclosure of LLC owners or corporate shareholders in public records, providing an extra layer of anonymity.

Delaware also holds a strong reputation globally. Many large corporations, including Google, Tesla, and Amazon, are incorporated there, which enhances credibility when dealing with banks, investors, and business partners. For startups looking to raise capital, Delaware C-Corporations are the preferred structure for venture capital firms and angel investors.

Furthermore, there is no sales tax in Delaware, which is beneficial for businesses that operate online or provide digital services. The flexibility for foreign owners is another major appeal, as there is no requirement to be a U.S. citizen or resident to form a Delaware company. Business owners can register and manage their company remotely without needing to visit the United States.

Overall, Delaware’s combination of tax advantages, legal protections, privacy, cost efficiency, and global recognition makes it the go-to choice for foreign entrepreneurs who want to establish a U.S. business presence

Delaware LLCs Accounting Requirements

A Delaware LLC has relatively simple accounting and compliance requirements, especially for foreign-owned LLCs that do not conduct business in the U.S. However, certain obligations must be met to maintain good standing. Here are the key requirements:

1. Annual Franchise Tax

Every Delaware LLC must pay an annual franchise tax of $300, regardless of income or business activity. This tax is due by June 1st each year and can be paid online via the Delaware Division of Corporations website.

2. No State Tax Return (If No U.S. Business Activity)

Delaware does not impose state income tax on LLCs that do not operate within the state. If the LLC has no U.S. business operations or employees, it generally does not need to file a Delaware state tax return.

3. Federal IRS Reporting (For Foreign-Owned LLCs)

Foreign-owned Delaware LLCs must comply with specific IRS requirements, even if they do not owe U.S. taxes. These include:

Form 5472 & Pro Forma 1120: If the LLC has at least one non-U.S. owner (foreign member), it must file Form 5472 along with a pro forma Form 1120 (U.S. corporate tax return cover page). This is due by April 15th each year.
Employer Identification Number (EIN): Even if the LLC has no U.S. income, it typically needs an EIN (Tax ID) to file IRS forms and open a bank account.
U.S. Taxation on U.S.-Sourced Income: If the LLC earns U.S.-sourced income (e.g., selling products or services to U.S. customers), it may be subject to U.S. taxation and must file a federal tax return (Form 1040-NR for non-residents or Form 1065 for multi-member LLCs).

4. No Mandatory Audits or Financial Statements

Delaware does not require LLCs to prepare audited financial statements or submit annual financial reports. However, it is recommended to maintain internal records such as:

Bank statements
Invoices and receipts
Profit & loss statements
Balance sheets

5. Bookkeeping & Record-Keeping

While Delaware does not require LLCs to submit financial records, businesses should keep proper accounting records for tax purposes. This is especially important if the LLC operates internationally or needs to comply with tax regulations in the owner’s home country.

6. Sales Tax (If Applicable)

Delaware has no sales tax. However, if the LLC sells products or services to customers in other U.S. states, it may need to register for sales tax in those states.

USA Taxation of Delaware LLCs

Despite the lack of State income taxes, Delaware LLCs are subject to USA Federal Tax Laws. The Internal Revenue Code (the "IRC") dictates that the taxation of Delaware LLCs is contingent on the number of members. In a unique scenario, if the LLC has a single member, it is treated as a disregarded entity for Federal Income Tax purposes. Disregarded entities with foreign ownership are required to file a pro-forma Form 1120 and Form 5472 with the IRS.

On the other hand, if the Delaware LLC has two or more members, it is treated as a partnership for tax purposes. Unlike corporations, it is not subject to double taxation. Instead, it is considered a flow-through entity for Federal Income Tax purposes. This means that LLC members are required to report their share of taxable net income generated by the company in their personal tax return, even if the income is not distributed by the LLC.

However, the sole member of, or the members of, a Delaware LLC can file a tax election with the IRS to treat their limited liability company as a separate taxable entity. In that scenario, the Delaware LLC would be taxed as a Delaware Corporation and subject to the US Federal Corporate Income Tax, whose rate is currently 21%.

How much does it cost to form a Delaware LLC?

My Fee for Standard Delaware LLC Formation - US$ 1,200

The fee includes:

Required filings with Delaware Secretary of State for LLC formation
Delaware Franchise Tax for 1 year
Delaware registered agent service for 1 year
Application with the IRS for an Employer Identification Number (EIN)
Introduction to a recommended US financial institution
Initial Beneficial Ownership Information Report (BOIR) filing with FinCen

Any other professional service is not included in the fee quotation above. Any additional professional service is charged according to my fee policy.

Can I request your assistance to form a Delaware Corporation or Partnership?

Yes. I can also assist you in forming a Delaware Corporation or a Delaware General or Limited Partnership. Do not hesitate to ask us for a price quotation for those services! A professional US CPA will guide you throughout the Delaware company formation process and explain all the accounting and tax requirements for a Delaware Corporation or a Delaware Limited Partnership or General Partnership.

Do you also provide company formation services in other US States?

Yes, I can assist you in the company formation process in most US States. Bear in mind that the US Federal Income Tax applies equally in any US State and that each US State can have a different legal framework for company formation. If you need specific advice on corporate law, I will be happy to refer you to a licensed US corporate lawyer. Click on US Company Formation to be redirected to the list of US States where I offer company formation services to foreign clients.

I also assist clients who wish to form an offshore company in British Virgin Islands (BVI), Turks and Caicos Islands (TCI), Luxembourg, and the Cayman Islands.

Are you seeking assistance for your international business journey?

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